ASIC targets reverse mortgages as lenders ditch products

In its 2017–18 to 2020–21 Corporate Plan, ASIC announced plans to “focus on the practices of financial product and service providers that may lead to poor outcomes for investors and consumers, including vulnerable consumers”.

One such new “key project” is reverse mortgages, with ASIC set to zero in on the product and selling practices that target older Australians and those approaching retirement.

The regulator regards “building financial capability” as a challenge requiring action from 2017 to 2021. Within that, Australia’s ageing population is considered a particular focus.

“In light of the ageing population and the growing importance of retirement issues, we have formed an internal working group to better coordinate the work we will undertake to address issues affecting older Australians,” ASIC said.

The working group will consider “older Australian’s use of financial products and services”, such as financial advice sought out during the transition to retirement and the ability of older Australians to undertake complicated financial decisions and the risks associated with those choices.

The third area highlighted was the “product and selling practices that target older Australians”. ASIC used reverse mortgages as an example.

Lender movements around reverse mortgages have been in the spotlight in the past few months. Bendigo and Adelaide Bank in June excluded earnings from cash profit expectations associated with its mortgage reversion product, leading UBS analyst Jonathan Mott to consider whether the bank was calling the top of the market. Macquarie and Westpac also withdrew reverse mortgage offerings from the market in June, and in July, Auswide Bank tightened up requirements on its equity release products so that prospective borrowers are required to provide proof of a satisfactory repayment history over the previous six months. 

Speaking with Mortgage Business, Heartland Seniors Finance chief executive Andrew Ford said that he considers reverse mortgage to be “probably the most heavily regulated consumer financial product in the market” and acknowledged that there is a “stigma attached” to the sector.

Mr Ford said: “The regulators, quite rightly, are really focused on consumer outcomes.”

He noted that “there were some poorly developed and poorly sold products in the past” but added that issues associated with reverse mortgages have “largely been addressed”.

In the corporate plan, ASIC said that it will continue to “promote better gatekeeper culture” through the surveillance of mortgage broker remuneration and the “responsible lending practices” required of brokers and lenders engaging with high volumes of interest-only loans.